Conditional Cash Transfers and Payments for Environmental Services—A Conceptual Framework for Explaining and Judging Differences in Outcomes

We develop a conceptual framework elucidating the main determinants of the impact of Conditional Cash Transfer (CCT) and Payments for Environmental Services (PES) programs. Using a simple multi-agent model and evaluations of existing programs, we show that (1) the share of the population who would meet the program’s conditions in the absence of payments is a powerful predictor of program efficiency, and that (2) program efficiency is eroded by selection bias (people who already meet conditions self-select into the programs at higher rates than others). We then discuss possibilities for increasing efficiency and criteria for evaluating and choosing between CCTs/PES or other policy instruments.